Practice Problems
Demonstration Problems
Demonstration problem A Comparative financial statements of Kellogg Company for 2003 and 2002 follow:
Kellogg Company
Comparative income statements
Fore the years ended 2003 December 31, and 2002
(USD millions)
|
|
2003 |
2002 |
|
Net revenues |
$6,954.7 |
$6,984.2 |
|
Cost of goods sold |
3,327.0 |
3,325.1 |
|
Gross margin |
$3,627.7 |
$3,659.1 |
|
Operating expense |
2,551.4 |
2,585.7 |
|
Nonoperating expense (interest) |
137.5 |
118.8 |
|
Income before income taxes |
$ 938.8 |
$ 954.6 |
|
Income taxes |
280.0 |
198.4 |
|
Net earnings |
$ 658.8 |
$ 756.2 |
Kellogg Company
Comparative Balance sheets
2003 December 31, and 2002
|
|
(USD millions) |
|
|
Assets |
2003 |
2002 |
|
Cash and temporary investments |
$ 204.4 |
$ 150.6 |
|
Accounts receivable, net |
685.3 |
678.5 |
|
Inventories |
443.8 |
503.8 |
|
Other current assets |
273.3 |
236.3 |
|
Property, net |
2,526.90 |
2,640.90 |
|
Other assets |
762.6 |
589.6 |
|
Total assets |
$4,896.3 |
$4,808.7 |
|
Liabilities and stockholders' equity |
||
|
Current liabilities |
$2,492.6 |
$1,587.8 |
|
Long-term liabilities |
1,506.20 |
2,407.70 |
|
|
|
|
|
Common stock |
103.8 |
103.8 |
|
Capital in excess of par value |
102 |
104.5 |
|
Retained earnings |
1,501.00 |
1,317.20 |
|
Treasury stock |
-374 |
-380.9 |
|
Currency translation adjustment |
-435.3 |
-331.4 |
|
Total liabilities and stockholders' equity |
$4,896.3 |
$4,808.7 |
- Prepare comparative common-size income statements for 2003 and 2002.
- Perform a horizontal analysis of the comparative balance sheets.
Demonstration problem B The balance sheet and supplementary data for Xerox Corporation follow:
Xerox corporation
Balance sheet with IOFS on an equity basis
2003 December 31
(USD millions)
|
Assets |
2003 |
|
Cash |
$1,741 |
|
Accounts receivable, net |
2,281 |
|
Finance receivables, net |
5,097 |
|
Inventories |
1,932 |
|
Deferred taxes and other current assets |
1,971 |
|
Total current assets |
$13,022 |
|
Finance receivables due after one year, net |
7,957 |
|
Land, buildings, and equipment, net |
2,495 |
|
Investments in affiliates, at equity |
1,362 |
|
Goodwill |
1,578 |
|
Other assets |
3,061 |
|
Total assets |
$ 29,475 |
|
Liabilities and stockholders' equity |
|
|
Short-term debt and current portion of long-term debt |
$2,693 |
|
Accounts payable |
1,033 |
|
Accrued compensation and benefit costs |
662 |
|
Unearned income |
250 |
|
Other current liabilities |
1,630 |
|
Total current liabilities |
$6,268 |
|
Long-term debt |
15,404 |
|
Liabilities for post-retirement medical benefits |
1,197 |
|
Deferred taxes and other liabilities |
1,876 |
|
Discontinued policyholders' deposits and other operations liabilities |
670 |
|
Deferred ESOP benefits |
-221 |
|
Minorities' interests in equity of subsidiaries |
141 |
|
Preferred stock |
647 |
|
Common shareholders' equity (108.1 million) |
3,493 |
|
Total liabilities and shareholders' equity |
$29,475 |
- Cost of goods sold, USD 6,197.
- Net sales, USD 18,701.
- Inventory, January 1, USD 2,290.
- Net interest expense, USD 1,031.
- Net income before interest and taxes, USD 647.
- Net accounts receivable on January 1, USD 2,633.
- Total assets on January 1, USD 28,531.
Compute the following ratios:
- Current ratio.
- Acid-test ratio.
- Accounts receivable turnover.
- Inventory turnover.
- Total assets turnover.
- Equity ratio.
- Times interest earned ratio.
Source: James Don Edwards and Roger H. Hermanson, https://s3.amazonaws.com/saylordotorg-resources/wwwresources/site/wp-content/uploads/2012/10/Accounting-Principles-Vol.-1.pdf
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